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POLL: Do You Actually Own Gold or Silver? Why or Why Not?

It’s tough to turn on the radio or late-night television these days without being bombarded by advertisements for gold and silver. The commercials usually have the same common themes:

The end of the world is near

The US dollar has lost buying power against other major currencies

Gold and Silver have outperformed equities during the prior decade

Other random hysteria

Yes, I Dabble in Gold and Silver

I have a small position in the gold ETF GLD, which in retrospect, probably wasn’t the best choice. See, since that ETF is representative of the underlying bullion spot price, it is taxed as a “collectible” at a higher tax rate (details on gold tax rates). Meanwhile, I’ve also made some money on a gold pairs trade when the premium on a closed-end fund got out of whack, which is the case presently for the same silver pairs trade but I couldn’t get the shares to short with my brokerage.

So, in a nutshell, I don’t have a sizable position in either of the precious metals. I’m doing fine watching equities take off and employing some opportunistic trades here and there.

Why I Don’t Plan on Buying Lots of Gold

Primarily, I don’t want to dedicate a substantial portion of my assets to a useless rock. Sure, there are some industrial applications and there’s the “finite supply” argument, but if we ever really have one of these End of Days events that are predicted virtually annually, I don’t think I’d be any better off with gold coins than a waffle iron. At that point, probably only guns, ammo, fresh water and boots have any utility.
From an investment standpoint, if you believe in efficient markets, then the price of gold and silver is already fairly priced in to today’s prices. Gold and silver don’t pay a dividend, and you need to pay for storage and middleman transactions. Some people believe there’s a gold confiscation coming and other government interventions may increase its value, but again, you’d think that’s priced in, right?

But let’s say gold rallies while the dollar crashes, stocks fall, etc. Would I really have owned enough gold to even make a difference? Would I want to dedicate that kind of money to that asset class? People with a vested interest in selling gold will often recommend holding at least 5% in gold. Let’s say you even have a $100,000 portfolio. Gold doubles in a year. So, you made $5,000 while the world fell apart. Would that really matter? It just seems like a bit of a futile chase of an asset that has already outperformed other asset classes, doesn’t pay a dividend, is prone to correction, and has some more onerous tax requirements than stocks.

This isn’t to say gold can’t continue to rise and perhaps even outperform equities over the next several years. But it just doesn’t make sense for me to own it in large enough amounts to make a difference.

I own lots of gold on heavy leverage. From my experience talking to many many people on this subject either you get it or you don’t. Most people dont. I find it funny that those who made the most shorting the housing market, and saw the crisis of 2008 (David Einhorn, Kyle Bass, Michael Burry, George Soros) have now shifted to a very high exposure to gold. For many it is their largest holding. Even China has come out and said they would like to build up to 10,000 oz of gold & surpass Ft. Knox.

Gold is money. The world will return to the gold standard once they realize you cannot leave the control of the money supply in the hands of a few. History has shown this time and time again. I have been buying since 2007 once I was convinced that a gold standard was inevitable.

I dont know where stocks will be in 5 years. But I know gold will be higher measured in $USD. The United States is insolvent. Despise gold all you want, it leaves more for me.

Also, your 100k argument is not a good one. That could be said about anything, and any asset. “If I put 5% of my portfolio into XXX stock, and it doubles, I only made very little….”

The majority of my money is in Gold, Silver and PM Miners. I will hold it until the US defaults, or we return to a gold standard… whichever comes first, but will not sell until one of those is met. It is not an end of the world trade as the naysayers claim, it is simply a bet against all fiat money…..

You call gold a “useless rock”– I would like to know what fair value you believe gold should be priced at? And why doesn’t the US dump all of its Gold since it is useless, and use the money to pay down the national debt? Ahhhh,…. because they can just print it digitally. You see….. This farce will end with much much higher Gold prices. I welcome all to watch from the sidelines as I participate.

I talk constantly about America’s unrealistic debt problems and future obligations. But to think the US dollar will just disappear is a bit conspiracy theorist. The alternatives are no good. Yen – obvious issues. Euro – worse off than US. Emerging markets – too unstable. As the lesser of many evils, the US Dollar will continue to exist, albeit with a slowly declining prominence.

I have no exposure to heavy metals outside of whatever my index funds have. There is a very simple reason for this: It is extraordinarily bad business to buy anything when it’s at historical highs. Fear and greed are poor reasons to buy.

“It is extraordinarily bad business to buy anything when it’s at historical highs.”

Rob,
Thats a flawed theory you have.
How about when gold was at 800, a historical high at that time. now its double that.
Many many stocks were at historical highs in any given year, and are now much higher.

As a value investor (my index fund exposure is just a hedge against my other holdings), I look for securities trading at a significant discount. I don’t chase profits. And I live by the golden rule of investing: Buy low and sell high. From my perspective, it looks like all the money has already been made in gold, which is usually the case in these scenarios. I may pick some up if it draws back significantly, but I doubt it.

To me, it looks a lot like the real estate boom. Real estate sells at hyper-inflated prices, pushed higher by speculation frenzy. Before long, there are going to be a lot of people who wake up one day to find out the 2,000 sf bungalow they bought for $500,000.00 isn’t really worth that much money.

But hey, keep on keeping on with your bad self. You do it your way, I’ll do it mine.

Where should I go to buy approximately 10,000 worth of physical gold? Should I look for bars or coins? If I’m looking for a short to intermediate time frame investment in the physical metal, which is better?

I own gold and silver bullion coins (Krugerrand, Maple Leaf, and American Eagle – 1 oz mostly) and mining companies. I believe that gold will increase in value as MANY governments create more and more fiat currency to support deficit spending. This is now at approximately 45% of my total portfolio. I am seriously thinking about selling shares of one pm company around Labor Day (US) and buying McDonald’s – MCD. You know, the Golden Arches! Cheers!

If you want to learn why Gold make sense as a hedge you should read a book called the “Currency Wars” by James Rickards who uses history and a behind the scenes understanding of the power behind global finance to show why gold make sense. Interesting how many people (like myself) were not aware of the different currency wars, manipulation by banks and the fact that we are moving towards a global economy.